Sainsbury's online boss addresses Amazon Fresh threat

Amazon's arrival on the UK grocery scene has been well constructed, due to its focus on speed of delivery, but the supermarket industry needs to be careful not to drive down profitability in eCommerce, according to Sainsbury's online director Robbie Feather.

Commenting at the grocery industry research group IGD's Online & Digital Summit on Tuesday, Feather – who will speak at RBTE 2016 in March – predicted that customer fulfilment options are set to be a significant battlefield in grocery retail over the coming years.

"[Amazon's trial] is worth mentioning because I think delivery options are going to be a game changer," he explained.

"I think Amazon has been quite clever and we don't underestimate them."

He suggested that trying to disrupt the grocery market when it is growing its convenience offering at such a rapid rate is probably a difficult thing for Amazon to achieve, but he acknowledged that the e-tailer's focus on speed of delivery could be a prudent move.

"The market for really quick grocery delivery with all your fresh products is quite limited. I think, however, if you start offering it customers will soon get into the habit of not planning ahead and doing their shopping on the day," Feather commented, adding that regular demand for deliveries within a day may then emerge.

"It's worth saying how quickly that market grows will very much depend on whether we charge for it.

"We as an industry have to be quite careful as to what we do there because there is a danger that we just create a cost additive channel in our businesses, ultimately diluting profitability by not charging. That's something we absolutely have to do, is charge for these services."

Earlier in his presentation, Feather argued that the UK had developed "the world's best online grocery industry", while at the same time single-handedly destroying "most of the value in the channel" by removing charges for picking and fulfilment, which are costly internal operations.

Aside from the fulfilment and the arrival of Amazon into UK grocery, Feather's speech detailed a number of other challenges and developments within the Sainsbury's business.

On grocery customer service

Feather admitted that, as an industry, grocers have arguably been guilty of saying they put the customer at the heart of what they do, but not necessarily following through with that commitment.

However, he added: "Our single-minded approach for online at Sainsbury's in the last 18 months has been to put the customer at the centre of what we do, not technology – although we need technology to make it happen.

"We spend quite a lot of time making the customer journey online better, making the site more stable and faster. It's just as important to the customer as having the latest sexy app."

On click & collect

Echoing comments he made about Amazon's fast delivery, Feather suggested that retailers often provide customers with solutions they cannot do without, even though they didn't necessarily ask for them in the first place.

He said: "That's certainly been the case with click & collect. We didn't see customers say 'we want to collect my groceries [in a store]' because we were actually doing home delivery, but if you give them the option you will find there are customers [who do want that service].

"We're a little bit behind the curve in terms of getting into that market but we've really gone for it this year. We'll be on 105 collection points by Christmas [up from today's figure of 75] and we'll continue to invest in that."

On increasing capacity

Feather underlined Sainsbury's eCommerce strategy for picking online orders from store, as opposed to following a dark store model – although the grocer is building its first dark store in Bromley-by-Bow, to open late in 2016. He warned that these facilities are "expensive assets", and said that he believes the emphasis on picking-in-store helps the business's bottom line grow.

"If we don't grow capacity fast enough we won't be able to be there for the customer in terms of stock availability," he noted.

"We at Sainsbury's have consistently said we believe in a store picking model rather than a dark store – and we are still in that space. What that means is we have a profitable online grocery business – and I genuinely believe we have the most profitable online grocery business in the UK."

Feather said: "To have a successful clothing business in the UK you absolutely have to be online. We spent a year trialling and we launched in August. It's clean, uncluttered, and we're really proud of it. We've absolutely blown expectations in terms of sales."